PSUs likely to launch masala bonds worth $1 billion in UK

As India gears up to raise funds to meet renewable energy target, state-run companies like NTPC, Power Finance Corp and REC are likely to launch masala bonds worth $1 billion in the UK in the next four months.

The bonds, which will be in range of $150-250 million, are likely to be limited to a band of five to seven years. "Companies, including NTPC, Neyveli Lignite Corporation, Power Finance Corporation, Power Trading Corporation and Rural Electrification Corporation are likely to launch these Masala Bonds totalling $1 billion in the next three or four months in the UK to gauge investor appetite," Power Minister Piyush Goyal said on Wednesday.

These will be subject to decisions made by the Boards of the PSU energy companies, the Minister said at a roundtable -- Financing Renewables and Energy Efficiency -- organised by the City of London here.

Goyal informed investors that the Indian Renewable Energy Development Agency is coordinating a billion-dollar equity fund, perhaps the largest in renewable space. This will be professionally managed by an independent international fund management company. Indian public sector companies have already committed $315 million, he added.

As India gears up to meet its ambitious renewable energy targets of 175 GW of installed capacity by 2022, the country is exploring international mechanisms of funding and is evaluating new and innovative tools to finance the renewables sector. 

As a step in this direction, Indian public sector giants are likely to examine rupee-denominated debt instruments like masala bonds to create and develop a new market and identify benchmark prices for these new instruments, the Power Ministry said in a release. The issuances which would be offered by blue-chip government companies are expected to help evolve new vistas of funding for the renewable energy space, it added.

In 2015, IFC issued the first masala bond listed on the London Stock Exchange. The bonds worth over Rs 1,000 crore were issued in a range of tenors, including a ten-year, to fund infrastructure projects.

Masala bonds are primarily rupee-denominated bonds issued to overseas buyers. Talking about the changing landscape, the Minister said that several measures are being taken to address the risks in the system one among them the distribution reform UDAY.

This is expected to hard stop future losses for distribution companies and is targeted to get these companies back on track. While some of these companies are likely to be revived sooner the entire distribution segment should be on track by 2019, he added.